Should Fox Shareholders Hope Murdoch Doesn’t Buy Time Warner?

The risks of a deal are becoming more apparent as 21st Century Fox CEO Rupert Murdoch prepares to sweeten the $80B offer that Time Warner rejected, MoffettNathanson Research’s Michael Nathanson observes in a thought-provoking report this morning. With memories of the AOL Time Warner debacle still fresh in their minds, Time Warner execs won’t accept a non-cash bid “unless it is wildly generous,” the analyst says. He hopes Fox draws the line at $100 a share, up from $85, but notes that Murdoch could go to $105 without losing his company’s investment-grade debt rating. Yet if he prevails at that price, then Fox would have little margin for error. And Nathanson warns that mega-mergers “are more complicated than the simplicity of adding two Excel spreadsheet models together.”

The bottom line is that Fox’s stock “is in purgatory”as long as Murdoch’s interest in Time Warner remains alive. And the legendary dealmaker may not be able to pull it off. “After initially believing that this deal gets done at $100 per share, we have our doubts that it will be done at all,” Nathanson says. Among his concerns:

What’s up with Chase Carey? The Fox COO is highly regarded on the Street, but his contract expires in mid-2016. Some shareholders “are nervous that this deal — and the value of [Fox’s] stock — will fall short of expectations if Chase was to leave.”

Recent Comments

I'm sorry but I always believe that power in the hands of one man or one family...

TT

7 months

I doubt that man will be allowed to buy because he is known to have political agendas...

Anonymous

7 months

Dear Brendan. Suspect that it was TW that dis-associated itself with AOL. AOL was the fraud in...

Too much general entertainment? Fox might be too fat with general entertainment networks if it adds Time Warner’s TBS and TNT to its FX. General entertainment channels have been “the biggest audience share losers over the past four years,” Nathanson says, with market share (measured by C-3 total day gross ratings points for 18 to 49 year olds) falling to 43% in the most recent TV season from 47% in 2009-10. “A lack of quality off-net syndication acquisitions, a shortage of blockbuster films available for purchase and increasing competition for original dramas has made the general entertainment network genre a tougher model to try to turn around.”

That leads to the sports question — whether Murdoch wants Time Warner, in part, to secure its NCAA, MLB, and NBA licensing deals for his channels including Fox Sports 1. “It is our understanding that these sports rights cannot be moved to other networks as they currently stand,” Nathanson says. But even if Murdoch can negotiate changes, it would exacerbate programming problems at TNT where NBA games account for 14% of its ratings and a greater percentage of ad dollars.

What would happen in Hollywood? “While ripping out studio overhead seems like a sure thing, our industry contacts believe that studio mergers fail to deliver on the 1+1=2 simplicity found in our models,” Nathanson says. Some execs would probably bolt under a new regime. What’s more, Warner Bros’ TV studio might suffer once it’s allied with a major broadcast TV network. WB’s independence “has helped attract key talent looking for the best arms-length TV licensing deal.”

6 Comments

Warner Borg • on Jul 28, 2014 8:18 am

If this were to happen it would be a disaster for Hollywood and audiences alike. There is no way that Fox and Warners can be as potent with both of them living under the same roof. Especially when they are so radically different in terms of how they are run.

Within ten years of this potential deal happening (maybe less) Fox would just swallow Warner Bros whole. It just isn’t practical for a media corporation to own two HUGE studios. It will start with their International divisions and before you know it the proud, storied studio of WB would be nothing more than a label making Batman films every few years within Fox.

However, having said that….., this is really unlikely to happen. Murdoch is a tired old man trying to make sure his kingdom is as ‘strong’ as possible before it hands it over to his sons. Time Warner will never accept a deal that relegates them to nothing more than glorified ‘peons’ within this unwieldy ‘Fox/Time Warner’ behemoth.

But the spectre of this potential corporate monstrosity still looms over the whole town and the entire media landscape.

Just like my user name Murdoch just wants to absorb assets into his own pulsating, grotesque Tetsuo (Akira) like form giving no thought as to whether such a deal should be done, only if it can be done.

Andrew • on Jul 28, 2014 8:18 am

Can these stories stop including pictures of this scrooge? Seriously, for a gagillionaire his constant frown just bums me out.

Even if they did manage to buy it, how long do you think they would keep Time Warner around. AOL held on to it for 9 years before disassociating itself with Time Warner. Of course, comparing an experienced media company and inexperienced tech company is not an apples to apples comparion. So there’s that.

Anonymous • on Jul 28, 2014 8:18 am

Dear Brendan. Suspect that it was TW that dis-associated itself with AOL. AOL was the fraud in that particular coupling

TT • on Jul 28, 2014 8:18 am

I doubt that man will be allowed to buy because he is known to have political agendas which he has turned his own Fox News into. The media is not to do that & it doesn’t matter which political view it is even though great views on both sides imo neither side can run a media station in America. It would corrupt the media which is already corrupt enough. FCC itself would not allow it nor would other federal regulators to prevent a monopoly if nothing else but I give the man a lot of credit! He came to America with a plan, is self made unlike Trump & some others, built a powerful station & he really has used money to help the poor too. Ted Turner who founded CNN has helped the poor so there are two smart men there of totally different politics but at least Turner got out early because of his politics so CNN could report news instead of political one sided shows like Fox has prime time at least. Nothing wrong with those shows as long as people don’t believe it is really news but most think it news rather than opinion.

Audience • on Jul 28, 2014 8:18 am

I’m sorry but I always believe that power in the hands of one man or one family is always a recipe for disaster…not for them but everyone else. I don’t see any benefits for consumers, audiences or their employees. The only people that this all benefits are shareholders, investors and fat bankers. This should not be even thinkable by The FCC.